Sacramento Launches $100-Million Energy Retrofit Fund

Sacramento, California – Sacramento commercial and residential property owners can now install energy-saving equipment at no upfront cost. Yesterday, local political leaders, including Mayor Kevin Johnson, announced the launch of Clean Energy Sacramento, a property assessed clean energy (PACE) program operated by Ygrene Energy Fund.

With PACE financing, the property owner agrees to repay the cost of improvements such as a more efficient chiller or rooftop solar panels through an annual property tax assessment lasting up to 20 years. If a building is sold or transferred, the PACE lien remains tied to the property. As I’ve written before at this blog, perhaps the strongest selling point of PACE financing is that it enables property owners to avoid the upfront cost to install new equipment, one of the thorniest problems of energy efficiency project development.

Years in the making, Clean Energy Sacramento launched with the support of the City of Sacramento. City leaders, eager to free the economy from an over-reliance on state government and new home construction, had been looking for ways to create jobs and meet the city’s environmental goals without making new demands on a lean city budget.

According to Ygrene Energy Fund CEO Stacey Lawson, Clean Energy Sacramento is the first privately funded clean energy financing model in the nation that includes both commercial and residential properties. Local governments across the country either scuttled or chose not to offer residential PACE programs after the Federal Housing Finance Agency (FHFA) ruled, in July 2010, it would not underwrite mortgages on homes with PACE liens. In August 2012, a federal district court judge in California ruled against the FHFA. Read my post on the ruling here.

Individual investors and regional banks have pledged $100 million over five years to fund Clean Energy Sacramento projects. “This is one of the unique aspects of our model,” said Lawson. “We have figured out how to do the interim funding with players who really want to invest in the local community and then have a mechanism by which we can securitize in the capital markets so we can recycle that capital over and over.”

Lawson said the pre-arranged financing and a focus on customer service (Ygrene opened a physical storefront at 2600 Capitol Avenue to offer one-stop service for property owners and contractors) are intended to speed completion of energy efficiency, renewable energy, and water efficiency projects undertaken by qualifying property owners.

“That means more jobs for the struggling construction industry here; it means more economic stimulus for our local communities. And at a time, as Mayor Johnson and others know, where city budgets are very much strapped for cash, Clean Energy Sacramento does this without a single taxpayer dollar,” said Lawson.

She added that Clean Energy Sacramento had pre-qualified $22 million in commercial and residential projects and trained 160 local contractors to offer PACE retrofits under the Ygrene model. “In anticipation of opening our doors, over the last year, we’ve been working with local contractors and commercial property owners” to line up projects, she said. The pipeline is 80% commercial projects.

One of the pre-approved projects is a $513,000 retrofit at 520 Capitol Mall, where the building owner will install a new high-efficiency chiller. The upgrade will save the owner $47,000 annually in avoided maintenance and reduced electricity bills.

Mayor Johnson noted that buildings account for nearly three-quarters of the electricity consumed in the United States. “If you can figure out a way to make buildings energy efficient, it’s going to get at every other item that we care about when it comes to being smart and green in our community,” he said.

The biggest challenge to upgrading buildings, he added, is capital on the front end. “We, as the public, don’t have dollars to put up front. We’ve been looking for ways to solve this dilemma. That’s where Ygrene comes in. They solved the upfront capital problem.”

Should Clean Energy Sacramento retrofits match the projections, Johnson said, it would help the city fulfill several long-term environmental and economic goals. Five-year goals for Clean Energy Sacramento – based on an economic impact analysis [PDF] of PACE programs conducted by ECONorthwest – assume that every $100 million invested in PACE projects creates 1,500 jobs, $250 million in economic activity, and $25 million in tax revenue.

By the end of the decade, the City of Sacramento aims to: double number of green jobs from 14,000 to 28,000; attract $1 billion in new investment in the green economy; retrofit 25% of existing homes, schools, commercial, and office buildings; and reduce energy consumption by 15%.

Ygrene Energy Fund plans to launch its Clean Energy Green Corridor program, located in Miami-Dade County, Florida, next month, Stacey Lawson told me in an interview. I wrote about the Green Corridor program last April. As in Sacramento, the Green Corridor program will be anchored by an Energy Center, where property owners can apply for funding and contractors receive training. The center is schedule to open on February 15, Lawson said, with the grand opening to be held soon thereafter.